Top PSU Power Financer Stocks to Buy Now with a Potential Upside of up to 47%: Should You Invest?
Introduction:
Top PSU Power Financer Public Sector Undertaking (PSU) stocks have garnered attention from investors for their ability to offer stable returns and growth potential. Among these, power financier companies play a crucial role in India’s economy, driving growth by financing projects related to power generation, transmission, and distribution. These companies are instrumental in bolstering the energy infrastructure that supports the country’s economic growth and electrification efforts. Furthermore, their significant involvement in government-led initiatives aims to enhance sector efficiency, contributing to India’s electrification goals.
The market is currently buzzing with optimism surrounding two PSU stocks in the power sector—Power Finance Corporation Ltd (PFC) and Rural Electrification Corporation Ltd (REC)—both of which are garnering attention from major brokerage firms like CLSA. The brokerage has a bullish outlook on these stocks, projecting a significant upside potential of up to 47%. Let’s dive deeper into these power financiers and see if they should be on your radar.
1. Power Finance Corporation Ltd (PFC)
Power Finance Corporation Ltd, a government-owned non-banking financial company, plays a significant role in financing India’s power and infrastructure sectors. With a market capitalization of Rs 1.33 Lakh Crores, PFC is one of the largest players in the field, offering various financial products and services such as loans, lease financing, and debt refinancing. It provides crucial financial assistance to power companies, equipment manufacturers, and infrastructure projects.
As of Thursday, PFC shares were trading at Rs 403 per share, marking a 2% increase from the previous closing price of Rs 395.7. Despite the recent uptick, the stock is still trading at a discount of 30.5% from its 52-week high of Rs 580. In the past three years, PFC’s shares have delivered an impressive return of 366%, while its five-year return stands at an equally impressive 361%.
According to CLSA, PFC holds an “Outperform” rating, with a price target of Rs 540 per share. This translates into a potential upside of 37% from its current price of Rs 395.7. CLSA’s optimistic outlook stems from the company’s strong performance and the overall stability of its asset quality, which has seen no major slippages in the last two years.
2. Rural Electrification Corporation Ltd (REC)
Rural Electrification Corporation Ltd, another major player in the power financing space, has seen its shares gain traction among investors. With a total market capitalization of Rs 1.08 Lakh Crores, REC offers a range of financial services, primarily providing loans for power generation, transmission, and distribution projects. It is instrumental in setting up power stations, improving sub-transmission and distribution systems, and financing various power-related initiatives.
On Thursday, REC shares were trading at Rs 412 per share, reflecting a 2.5% rise from the previous day’s closing price of Rs 402. This stock is trading at a discount of 37% from its 52-week high of Rs 654. Over the last three years, REC has delivered a return of 350%, and an even more remarkable 376% return over the last five years.
CLSA has also maintained an “Outperform” rating on REC with a price target of Rs 590 per share, suggesting an upside potential of 47% from its current price of Rs 402. Given the company’s strong financial backing and consistent performance, CLSA is confident about its continued growth.
Brokerage Firm’s Rationale:
CLSA remains highly optimistic about the power financier sector, particularly focusing on PFC and REC. The firm has noted that the asset quality of these companies, particularly in their portfolios related to power generation (genco), renewable energy, and infrastructure, has remained stable over the last two years, with no significant slippages in the portfolios.
However, CLSA also observed that the distribution company (discom) portfolios of these power financiers have been more volatile. Despite this, the brokerage expects both PFC and REC to increase their provision coverage ratio (PCR) for discoms in Q4FY25. This increase, however, is expected to be within a specific range and is unlikely to create significant downside risks.
CLSA also expects a positive outcome from bad loans, anticipating write-backs of Rs 2,200 crore to Rs 2,500 crore from pending bad loans. Additionally, the KSK Mahanadi resolution is expected to contribute to further write-backs in the coming quarters, further boosting the performance of these stocks.
Financial Ratios and Key Data for PFC and REC:
| Financial Metric | Power Finance Corporation Ltd (PFC) | Rural Electrification Corporation Ltd (REC) |
|---|---|---|
| Market Capitalization | Rs 1.33 Lakh Crores | Rs 1.08 Lakh Crores |
| Current Share Price | Rs 403 | Rs 412 |
| 52-Week High | Rs 580 | Rs 654 |
| 3-Year Return | 366% | 350% |
| 5-Year Return | 361% | 376% |
| CLSA Target Price | Rs 540 | Rs 590 |
| Upside Potential | 37% | 47% |
Conclusion:
Power Finance Corporation Ltd (PFC) and Rural Electrification Corporation Ltd (REC) are two key PSU stocks that investors should keep an eye on, with an impressive upside potential of up to 47%. CLSA’s positive outlook and the stable asset quality of these companies make them attractive investment opportunities in the power financing sector. Both PFC and REC have shown consistent returns over the past few years, and with favorable market conditions and government support, these stocks are well-positioned to continue their upward trajectory.
If you’re looking to diversify your portfolio with a focus on stable, government-backed companies in the power sector, PFC and REC should definitely be on your radar. Always remember to conduct thorough research and consult with a financial advisor before making investment decisions.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.